Collie v Merlaw Nominees Pty Ltd [2001] VSC 39

Supreme Court of Victoria|2001-02-28|Before: Warren J

TRUSTS - trading trust - trustee's indemnity from trust assets - subrogation to creditor of trustee's indemnity. PROCEDURE - application to withdraw admission in pleadings. CORPORATIONS - leave to proceed against company in liquidation - Corporations Law, s.471B.

The plaintiff pursues a judgment debt owed to him by the first defendant, a trustee company, by way of seeking to subrogate to the plaintiff the right of indemnity of that trustee company from the assets of the trust of which it was formerly the trustee.

The relevant judgment was entered in Supreme Court proceeding No. 6265 of 1991 ("the first proceeding") by order of Byrne J made on 24 November 1999. The judgment was for the sum of $92,784.74 together with interest of $106,052.96 and ordered against Merlaw Nominees Pty Ltd ("Merlaw").

In 1984 a company associated with Geoffrey Malcolm Collie known as Collian Properties Pty Ltd became a tenant of part of a building at 32 Jolimont Terrace, Jolimont ("the Jolimont property"). The property was owned by Merlaw, a trustee company associated with Damien John Nolan. Merlaw was originally known as Seventy-Seventh Albye Trading Pty Ltd. It was the trustee of a trust known as the Prudent Trust. Merlaw purchased the Jolimont property in about 1981. The tenancy arrangement appeared to require the Collie interests to pay rent and a share of rates, taxes and outgoings to Merlaw. Mr Collie conducted a solicitor's practice from the Jolimont property. It seems that Mr Nolan at the same time conducted a number of other businesses from the property.

In late 1984 and early 1985 a number of transactions occurred affecting the Jolimont property. First, Merlaw borrowed $250,000 from Ogge Partners Nominees Pty Ltd and provided a mortgage over the Jolimont property as security. Second, Mr Nolan and Mr Collie entered into an arrangement of some complexity for the sale by Merlaw to Terramont Pty Ltd ("Terramont"). The latter was a shelf company proposed as a joint venture vehicle between Mr Nolan and Mr Collie. The circumstances of that arrangement and its terms warrant elaboration.

The joint venture arrangement consisted of the creation of two separate discretionary trusts, one relating to the family of Mr Nolan and the other relating to the family of Mr Collie. The trust relating to the family of Mr Nolan was known as the Terranol Trust ("Terranol"). The wife and children of Mr Nolan were the primary beneficiaries. The wife of Mr Collie was the principal of the Terranol trust with the power to appoint and remove the trustee of that trust. Terramont was appointed trustee of the Terranol Trust. The trust relating to Mr Collie was known as the Terracol Trust ("Terracol"). The wife and children of Mr Collie were the primary beneficiaries of that trust. The wife of Mr Nolan was the principal of the Terracol Trust with the power to appoint and remove the trustee of that trust. Terramont was appointed trustee of the Terracol Trust also.

Merlaw entered into a contract of sale dated 31 December 1984 whereby it agreed to sell the Jolimont property to Terramont for the sum of $350,000. The purchase price was to be paid in three stages. First, the sum of $90,000 was to be paid by Terramont within 60 days of the signing of the contract. Second, $250,000 was to be paid by way of Terramont assuming the obligations of Merlaw under the mortgage to Ogge. Third, the balance of the purchase price being the sum of $10,000 was to be paid at the end of the period of five years. As a result of these terms, Merlaw remained on title pending payment of all monies under the contract of sale. On 21 February 1991, initial settlement of the contract of sale for the Jolimont property was effected by various means and the first instalment was paid to Merlaw under the contract.

Between 1985 to 1987 the Nolan interests and the Collie interests both occupied the Jolimont property. Under the joint venture arrangement each of the Nolan and Collie interests paid monies apparently in equal proportions to Terramont and it in turn applied those monies to meet the obligations of Merlaw under the mortgage to Ogge and to pay various outgoings relating to the Nolan and Collie interests including various leased equipment costs, rates, outgoings and other overheads.

On 24 April 1987 Mr Collie was convicted of certain criminal charges and sentenced to a term of imprisonment. He was incarcerated for about seven months and released from custody on 17 November 1987. During this period the Collie interests did not pay monies to Terramont and as a result the bank account in the name of the company was overdrawn. By the time of the release of Mr Collie from prison the amount overdrawn stood at $48,000. Furthermore, the Ogge mortgage was about to fall due.

Hence, around this time Mr Nolan and Mr Collie agreed to re-finance the Ogge mortgage through Australia and New Zealand Banking Group Limited ("ANZ") at the same branch of that bank as used by Mr Nolan. The re-finance proposal consisted of a bank bill facility for the amount of $265,000. It seems arrangements were made with ANZ. As a consequence, Mr Nolan and Mr Collie went together to the ANZ branch used by Mr Nolan in rushed circumstances on Christmas Eve 1987 in order to effect the re-finance through ANZ. On that occasion Mr Collie did not enter the bank. Rather, he waited outside the bank in his car and Mr Nolan went inside and finalised the draw down of the bank bill facility. Presumably because Merlaw remained on title and, therefore, was the legal owner of the Jolimont property, Mr Nolan on behalf of Merlaw signed the relevant bill facility documents including an all monies mortgage in favour of ANZ over the Jolimont property. Consequently, as the security was an all monies mortgage it secured all borrowings of Merlaw with ANZ. It transpired that at the time of the execution of the mortgage on 24 December 1987 Merlaw then owed to ANZ the bill facility of $265,000 in relation to the Jolimont property, another bill facility of $450,000 in place from about April 1986 and an overdrawn account in the amount of $31,446.00. Hence, upon execution by Mr Nolan of the ANZ all monies mortgage on 24 December 1987, the Jolimont property became security for a total amount of about $746,446. Merlaw was aware of the true position but Mr Collie and Terramont were not.

In July 1988 Merlaw increased the bill facility for the sum of $265,000 to $300,000 with the knowledge and consent of Mr Collie.

Meanwhile, a little later in time, Terramont was deregistered on 11 October 1988 due to the failure to lodge company returns for the years 1985, 1986, 1987 and 1988. Furthermore, apparently, by early 1989 Merlaw was encountering financial difficulty. ANZ began to press Merlaw to put its affairs in order. Mr Collie and Mr Nolan discussed selling the Jolimont property. In April 1989 Mr Collie obtained a valuation for that property of $900,000. Mr Collie and Mr Nolan could not agree on the manner of sale or the sale price. By July 1989 ANZ declined to roll over the $300,000 bill facility relating to the Jolimont property. However, as at August 1989 Merlaw owed ANZ $896,072.94. It seems the Jolimont property secured that sum.

In about October 1989 Mr Nolan denied (it seems for the first time) that Mr Collie or his associated interests had any interest in the Jolimont property. He claimed that the property belonged to the Nolan interest. Mr Nolan informed ANZ of as much and listed the Jolimont property as an asset of the "Nolan Group" with an attributed value of $900,000.

As a consequence of the actions of Mr Nolan, the wife of Mr Collie, lodged a caveat on the title to the Jolimont property claiming an equitable interest in that property on the basis of the purchase by Terramont of the property in its capacity as trustee of the Terracol Trust of which Mrs Collie was a primary beneficiary. Ultimately, the caveat was withdrawn.

Meanwhile, final payment of the balance of $10,000 by Terramont to Merlaw under the contract of sale for the Jolimont property fell due in February 1990. Solicitors for Terramont tendered the balance which was refused by solicitors on behalf of Merlaw, Mr Nolan maintaining his position that the Collie interest had no interest in the Jolimont property.

By June 1990 Merlaw owed ANZ over $1,000,000. On 27 June 1990 ANZ sold the Jolimont property in its capacity as mortgagee for the sum of $750,000. ANZ applied the balance of the proceeds of sale to reduce the debt then owed by Merlaw to it from $1,051,638.36 to a balance of $322,270.26.

Subsequently, an application was made in this court by the wife of Mr Collie, as a primary beneficiary of the Terracol Trust, for the appointment of Mr Collie as the trustee of that trust. An order was made by Nathan J on 8 February 1991 appointing Mr Collie as the trustee of the Terracol Trust instead of Terramont Pty Ltd.

These facts provide a broad overview of the background circumstances that led to the first proceeding.

Mr Collie brought the first proceeding in his capacity as the trustee of the Terracol Trust against Merlaw and also Margaret Nolan and ANZ. There were three claims brought in that proceeding against Merlaw. First, a claim for breach of contract for the sale of the Jolimont property by Merlaw to Terramont. In essence, Mr Collie alleged that there were a number of implied terms under the contract that no mortgage other than the mortgage securing the ANZ bank bill facility of $265,000 would affect the land without the consent of Terramont as purchaser. Byrne J rejected this claim.

The second claim in the first proceeding was that Terramont acquired an equitable interest in the Jolimont property upon the making of the contract with Merlaw which trust was breached by the giving of the all monies mortgage to ANZ. Byrne J held that a breach occurred. His Honour found that as a consequence of the application of the proceeds of sale by ANZ to reduce the Merlaw account the Terracol and the Terranol Trusts were deprived of their equitable interest in the surplus after payment of the liabilities of Merlaw assumed by Terramont under the contract of sale (the Ogge mortgage and, after December 1987, the ANZ mortgage).

The third claim was for breach of a constructive trust. Byrne J rejected the claim.

Furthermore, Merlaw raised a number of defences to the claims of Mr Collie: reliance upon the fact that Mr Collie had entered into a compromise of the first proceeding with ANZ; estoppel; and, unconscionability. Byrne J rejected each of these defences.

Ultimately, Byrne J found the claim of breach of trust by Merlaw made out. The proceeding against ANZ was compromised and, therefore, did not form part of the determination of His Honour.

The claim against Mrs Nolan in the first proceeding were based upon breach of director's duty. Byrne J found that the claim against Mrs Nolan failed.

On 22 December 1998, Byrne J delivered his judgment in the first proceeding. I have drawn upon the reasons of the learned judge in setting out the history of this matter. Ultimately, on 24 November 1999, Byrne J made final orders for judgment in favour of Mr Collie as trustee of the Terranol Trust against Merlaw in the sum of $92,784.74 with interest in the sum of $106,052.96.

Between 1993 and the trial of the first proceeding in 1998, a series of events occurred that, although not relevant in the determination of that proceeding, became relevant in the attempt by Mr Collie to execute the judgment ordered by Byrne J on 24 November 1999.

Under the original trust deed dated 22 August 1979 Seventy Seventh Albye Trading Pty Ltd was appointed as trustee and appointor of the Prudent Trust. The trust deed empowered the appointor to appoint a new trustee (clause 11) and to vary the terms of the trust deed with the consent of the appointor by declaring any new or other powers concerning the trust (clause 10). By 1981, the name of the trustee was changed to Merlaw Nominees Pty Ltd.

On 2 July 1993 Merlaw as trustee of the Prudent Trust by way of deed varied the original trust deed by empowering the trustee to give any guarantee or indemnity, the power to draw and issue promissory notes and other instruments and, significantly for present purposes, added a new clause 20 to the trust deed entitling the trustee to be indemnified out of the trust fund. The new clause 20 provided, as follows:

"Notwithstanding any other provision in the Trust Deed, the Trustee shall be entitled to be indemnified out of the Trust Fund for all liabilities which the Trustee may incur or to which the Trustee may be subject and if the Trustee deems fit make any contract hereby authorised in such manner that the same and any liability thereunder shall be enforceable against the Trust Fund and all persons or corporations extending credit to, contracting with or having any claims against the Trustee in respect of the Trust Fund may look to the Trust Fund for the payment of any such contract or claim or for the payment of any debt, damage, judgment or decree or for any money that may otherwise become due or payable by the Trustee PROVIDED ALWAYS that the Trustee shall not have the power or authority to enter into a contract which will bind or affect a Beneficiary personally nor call upon a Beneficiary for any payment whatsoever."

The amending deed recited that Merlaw was the trustee and appointor of the Prudent Trust. The amending deed was executed by Merlaw.

Clause 11 of the original trust deed empowered the appointor to appoint an arbitrator, among other matters, to remove any trustee of the Prudent Trust from office (without assigning any reason for doing so) and to appoint a new or additional trustees. On 30 September 1993 Merlaw, in its capacity as appointor of the Prudent Trust appointed Walnut Lane Pty Ltd as arbitrator. By deed and title "Deed of Removal and Replacement of Trustee" the arbitrator, Walnut Lane exercised its powers under clause 11 of the original trust deed and removed Merlaw as trustee and appointed Mr Nolan as trustee of the Prudent Trust. Margaret Nolan, at the time, was a director of Walnut Lane and Mr Nolan was the secretary of the company.

In his defence in the present proceeding, Mr Nolan admitted the creation of the Prudent Trust and that Merlaw was its trustee until 11 October 1993. He admitted, also, that he was appointed the sole trustee of the Prudent Trust in place of Merlaw on 11 October 1993. On the basis of the trust deeds and amending deeds and the admissions of Mr Nolan I am satisfied for present purposes that Merlaw was the trustee of the Prudent Trust until 11 October 1993 and that from that date onwards Mr Nolan was trustee of the Prudent Trust.

After the appointment of Mr Nolan as trustee of the Prudent Trust an event of significance in the present proceeding occurred. However, it is necessary first to describe other relevant assets previously held by Merlaw on trust for the Prudent Trust. At a date unknown but at least by July 1982, Merlaw, under its previous name, Seventy-Seventh Albye Trading Pty Ltd was the registered proprietor of the property at 16 Walmer Street, Kew ("the Kew property"). On 12 October 1993 Merlaw executed a transfer of the Kew property to Mr Nolan. The transfer instrument recited the consideration as being "change of trustee entitled in equity". The transfer instrument was not lodged until much later. On 22 March 1994 Merlaw, as nominee for the trustee for the Prudent Trust mortgaged the Kew property to MBF Investments Pty Ltd as security for the advance of the sum of $650,000. The mortgage to MBF took priority over other mortgages. The recitals in the annexure sheet to the MBF mortgage were significant. They recited four important matters:

(1) That Merlaw was originally the trustee of the Prudent Trust.

(2) That Merlaw held the Kew property as nominee of Mr Nolan in his capacity as trustee of the Prudent Trust.

(3) That Merlaw held the Kew property as trustee of the Prudent Trust.

(4) That the Kew property was "at all times" an asset of the Prudent Trust.

The MBF mortgage was executed for Merlaw by Mrs Nolan as director and Mr Nolan as secretary of Merlaw and by Mr Nolan in his personal capacity as a guarantor and by MBF.

The instrument of transfer by Merlaw to Mr Nolan for the Kew property was lodged in the latter part of 1998. Byrne J delivered his primary judgment in the first proceeding on 22 December 1998. It is not clear when the instrument of transfer was lodged for registration in relation to the Kew property save that it was around this time. Mr Collie filed a summons in the first proceeding on 5 February 1999 seeking orders to restrain the registration of the instrument of transfer. On 12 February 1999 Beach J ordered that the Registrar of Titles be restrained from registering the transfer until 18 March 1999 or further order. On 18 March 1999 the matter returned before Beach J who ordered, in effect, the continuation of the injunction until further order. As observed already Byrne J made the final orders in the first proceeding on 24 November 1999. On 23 December 1999, Mr G. Rambaldi was appointed administrator of Merlaw. On 16 February 2000 the creditors of Merlaw passed a resolution for the voluntary winding up of Merlaw and Mr Rambaldi was appointed liquidator.

Mr Rambaldi prepared a voluntary administrator's report dated 20 January 2000. The report described the directors of the company at the time of the appointment of the administrator as being Mr Nolan and his wife, Margaret Nolan. Mr Rambaldi recited in the report certain facts he said he was informed of by those directors. The facts included the fact that Merlaw was the registered proprietor of the Jolimont property and the Kew property as the trustee of the Prudent Trust. It also described the fact that Mr Nolan replaced Merlaw as trustee of the Prudent Trust. Hence, by the time the current proceeding came on for trial Merlaw had been placed in liquidation although it was not of that status at the time of the orders made by Byrne J in the earlier proceeding.

In the present proceeding Geoffrey Collie sought a declaration that Merlaw was entitled to an indemnity out of the trust estate of the Prudent Trust in respect of the judgment entered in the first proceeding and, further, that Merlaw had an equitable charge or lien over the trust estate to that extent. Mr Collie claimed also, a permanent injunction restraining Mr Nolan from dealing with the Kew property without first satisfying the right to indemnity of Merlaw. Mr Collie sued as judgment creditor in the first proceeding and by subrogation to the right of indemnity of Merlaw.

Merlaw, as Merlaw Nominees Pty Ltd (in liquidation), was joined for conformity only. At the commencement of the trial Mr R. Randall of counsel appeared on behalf of the liquidator and informed the court that Merlaw did not intend to participate in the trial and would abide by the ultimate order of the court.

In this proceeding Mr Nolan was sued by Mr Collie in his capacity as a director of Merlaw, as the sole trustee of the Prudent Trust and personally. Mr Collie claimed that the judgment ordered in the first proceeding had not been satisfied by Merlaw and that it was entitled to an indemnity out of and to exoneration from the trust estate of the Prudent Trust in respect of the judgment. He alleged that Mr Nolan denied the right of Merlaw to indemnity and had refused to satisfy the judgment from the trust estate and, further, threatened unless restrained from so doing of disposing of the assets of the Prudent Trust including the Kew property in a manner that would prejudice the right of subrogation of Mr Collie.

Mr Nolan, in his defence, did not admit the right of subrogation of Mr Collie to the right of indemnity of Merlaw. He denied that Merlaw acted solely as trustee of the Prudent Trust. He denied, also, that the judgment was entered in respect of a liability incurred by Merlaw in the course of acting as trustee of the Prudent Trust. Furthermore, Mr Nolan denied that Merlaw was entitled to indemnity from the trust of the Prudent Trust and that it had an equitable charge or interest in the trust estate to that extent. Save for these denials Mr Nolan admitted all matters alleged in the amended statement of claim including, in particular, an allegation that by reason of its own impecuniosity Merlaw had failed to institute proceedings for indemnity and exoneration in respect of the liability arising from the judgment.

Save for preliminary applications on the first day of the trial, Mr Nolan appeared on his own behalf. On the second day, also, Merlaw was represented by counsel but not thereafter.

The plaintiff tendered the pleadings in the related proceedings, the relevant Prudent Trust deed and variations, the relevant titles, mortgages, transfers of land, contracts of sale relating to the Jolimont and Kew properties. The plaintiff tendered, also, the annual returns and profit and loss statements and balance sheets for Merlaw and various correspondence. Tendered in evidence, in addition, were the sets of reasons of Byrne J in the first proceeding. Further, the plaintiff tendered in evidence the minutes of meeting of the creditors of Merlaw of 16 February 2000 and correspondence relating to the administration and winding up of Merlaw and the attempts by the plaintiff in the present proceeding to recover the judgment debt ordered by Byrne J in the first proceeding. The full transcript of the trial in the first proceeding was also tendered.

Two witnesses were called. Mr Ian Collie, the son of the plaintiff who acted on behalf of his father. Mr Ian Collie gave evidence of the circumstances surrounding the administration and winding up of Merlaw and the attempts on behalf of his father to recover the judgment debt. Mr Rambaldi, the liquidator of Merlaw was a further witness. He gave evidence concerning the circumstances surrounding the administration of the company and its subsequent winding up. Mr Nolan did not give evidence in the proceeding.

In order to determine whether Merlaw is entitled to be indemnified from the estate of the Prudent Trust and, in turn, whether that entitlement or right is subrogated to the plaintiff there are two issues to be determined. First, whether, until October 1993 Merlaw was the trustee of the Prudent Trust and thereafter the role of trustee was assumed by Mr Nolan. Second, whether the Jolimont property was an asset of the Prudent Trust that Merlaw acquired, owned, managed and sold in its capacity as trustee of the Prudent Trust.

Whether the Jolimont Property was an Asset of the Prudent Trust

The full transcript of the trial in the first proceeding before Byrne J was tendered in evidence in the present proceeding without objection by Mr Nolan. The transcript disclosed (at p.1066) that Mr Nolan gave evidence before Byrne J that Merlaw held the Jolimont property as trustee of the Prudent Trust. Indeed, it was put to Mr Nolan in the first proceeding as to whether Merlaw owned the Jolimont property in its own right and he gave evidence that Merlaw held the Jolimont property as trustee of the Prudent Trust. In his reasons for judgment, Byrne J found that Merlaw held the Jolimont property on behalf of the Prudent Trust.

Accounting records of Merlaw were tendered on behalf of the plaintiff. The balance sheet of Merlaw as trustee of the Prudent Trust for the financial years ending 30 June 1982 and 1983 listed the Jolimont property and the property at 16-Walmer Street Kew as "investments" of the Prudent Trust. The ANZ records in relation to Merlaw were tendered, without objection, also. As at 30 June 1983 the records listed the Jolimont property and the Kew property as assets of Merlaw in its capacity as trustee for the Prudent Trust. The balance sheet for Merlaw for the year ending 30 June 1989 listed the Jolimont property and the Kew property as "non-current assets" of the Prudent Trust.

The plaintiff relied, also, upon an affidavit sworn by Mr Nolan on 18 December 1989 in support of an application brought under s.459(6) of the then Companies (Victoria) Code for the reinstatement of registration of Merlaw that was cancelled on 14 June 1988. In the affidavit Mr Nolan deposed that Merlaw acted solely as trustee of his "family Trust", that is, the Prudent Trust and did not carry on any other business. This was consistent with the evidence later given in the first proceeding before Byrne J.

On 10 January 2000 the then administrator of Merlaw, Mr Rambaldi, sent a facsimile to Mr Ian Collie, the son of the plaintiff. The facsimile included notes of information obtained by the administrator as a result of his discussions with Mr Nolan and Mrs Nolan in relation to Merlaw. The notes recorded that in 1981, Merlaw in its capacity as trustee of the Prudent Trust purchased the Jolimont property.

Mr Nolan did not challenge any of these matters. He did not adduce any evidence to rebut the evidence relied upon by the plaintiff in support of the fact that Merlaw held and owned the Jolimont property in its capacity as trustee of the Prudent Trust and sold that property to Terramont in its capacity as trustee of that trust. Further, there was no contradicting evidence adduced by Mr Nolan to suggest a contrary finding.

It is relevant, also, that on 24 December 1987 Merlaw mortgaged the Jolimont property to ANZ. The original mortgage recited the mortgagor as "Merlaw Nominees Pty Ltd as trustee for the Prudent Trust". It transpired that a year later the words "as trustee for the Prudent Trust" were deleted to accord with the requirements of the Titles Office and the Transfer of Land Act 1958. It is to be observed that these matters were not challenged by Mr Nolan. Certainly no evidence was adduced by him to contradict the factual assertion made on behalf of the plaintiff that at all times including when the Jolimont property was mortgaged to the ANZ Bank it was held by Merlaw in its capacity as trustee of the Prudent Trust.

I am satisfied on the evidence before me that Merlaw was the trustee of the Prudent Trust until October 1983 and that thereafter Mr Nolan replaced Merlaw as the trustee. I am satisfied, also, that at all times the Jolimont property was owned and held by Merlaw in its capacity as trustee of the Prudent Trust and, further, that the Jolimont property was an asset of that trust. I am satisfied, in addition, that Merlaw mortgaged the Jolimont property to ANZ in its capacity as trustee of the Prudent Trust. Furthermore, much of these findings are the subject of an issue estoppel and res judicata arising from the reasons of Byrne J delivered on 22 December 1998.

Having found these facts I turn to the primary issue, namely, whether Merlaw is entitled to be indemnified from the estate of the Prudent Trust.

The Entitlement of Merlaw to an Indemnity from the Trust

It appeared that the reason that the plaintiff, Geoffrey Collie pursued the indemnity and subrogation claim in the present proceeding was because the assets of the Prudent Trust also include the Kew property. Mr Collie seeks declarations that Merlaw is entitled to an indemnity from the assets of the trust, including the Kew property and that in turn, arising from the judgment of Byrne J, he is entitled to the subrogation of that indemnity to him.

It is well established that a trustee is entitled to be reimbursed out of the trust property in respect of all charges and expenses properly incurred in the execution of the trust: Vacuum Oil Co Pty Ltd v Wiltshire [1945] HCA 37; (1945) 72 CLR 319, 335; Custom Credit Corp Limited v Ravi Nominees (1992) 8 WAR 42, 52-53. The right of reimbursement and indemnity is a first charge or lien on the trust property: Octavo Investments Pty Ltd v Knight [1979] HCA 61; (1979) 144 CLR 360, 367, 369-370; Custom Credit, supra, 53; Re Pumfrey (1887) 22 Ch D 255, 262; Rothmore Farms Pty Ltd v Belgravia Pty Ltd (1999) FCA 745 at paragraphs 33-35; Jennings v Mather [1902] 1 KB 1, 6-7.

On the basis of the principles, therefore, Merlaw enjoyed a right of indemnity from the property of the Prudent Trust. The next question to be determined is whether the change of trustee on 11 October 1993 affected that indemnity in any way. The plaintiff contended that it did not and that the right of Merlaw to indemnity, exoneration and lien continued despite the change of trustee to Mr Nolan. If a trustee is removed and relinquishes possession of trust assets the lien or charge still subsists against the trust assets: see Chief Commissioner of Stamp Duties v ISPT Pty Ltd (1998) 45 NSWLR 639, 653; also Rothmore Farms, supra, at paragraphs 36-42. On the basis of this principle, therefore, a former trustee such as Merlaw remains liable but the new trustee takes the trust property subject to the right of indemnity of the predecessor of the new trustee. Hence, where the former trustee has created a lien over the trust assets it will be enforceable in equity proceedings against the successor trustee: see Williams v Hathaway (1877) 6 Ch D 544, 551; also Cummins v Perkins [1899] 1 Ch 16, 19-20.

It follows on the basis of the aforestated principles that Merlaw enjoyed a right of indemnity from the assets of the Prudent Trust and, further, upon the retirement of Merlaw and the appointment of Mr Nolan, the latter in his capacity as the new trustee of the trust took the trust property subject to the right of indemnity of Merlaw.

The next question to be determined is whether the right of indemnity enjoyed by Merlaw is subrogated to the plaintiff, Geoffrey Collie.

As a general proposition, equity will alleviate the position of creditors of a trustee at common law by deeming the creditors entitled to the rights of the trustee against the trust fund. Equity will subrogate the rights of the trustee to the creditors of the trustee. Jessel M.R. articulated the principle of the entitlement of a creditor of a trustee to be subrogated to the trustee's right of indemnity in In Re Johnson, Shearman v Robinson (1880) 15 Ch 548, 552-3:

"With regard to the point that has been argued, I understand the doctrine to be this, that where a trustee is authorized by a testator, or by a settlor - for it makes no difference - to carry on a business with certain funds which he gives to the trustee for that purpose, the creditor who trusts the executor has a right to say, 'I had the personal liability of the man I trusted, and I have also a right to be put in his place against the assets; that is, I have a right to the benefit of indemnity or lien which he has against the assets devoted to the purposes of the trade.' The first right is his general right by contract, because he trusted the trustee or executor: he has a personal right to sue him and to get judgment and make him a bankrupt. The second right is a mere corollary to those numerous cases in Equity in which persons are allowed to follow trust assets. The trust assets having been devoted to carrying on the trade, it would not be right that the cestui que trust should get the benefit of the trade without paying the liabilities; therefore the Court says to him, You shall not set up a trustee who may be a man of straw, and make him a bankrupt to avoid the responsibility of the assets for carrying on the trade: the Court puts the creditor, so to speak, as I understand it, in the place of the trustees."

Thus, as a matter of general principle a creditor of a trustee is entitled to be subrogated to the trustee's right of indemnity out of trust assets: see also In re Blundell, Blundell v Blundell (1890) 44 Ch D, 9-10; Vacuum Oil, supra, 325; Re Evans (1887) 34 Ch D 597; Custom Credit, supra. In the present matter, the situation is complicated by the fact that Merlaw is in liquidation.

The High Court has considered the personal liability of a trustee for any debts incurred in the discharge of the trust and the entitlement of that trustee to an indemnity where the trustee was in liquidation. In Octavo Investments Pty Ltd v Knight [1979] HCA 61; (1979) 144 CLR 360 the High Court was concerned with a company in liquidation that had been a trustee of a small fund held for the benefit of certain family trusts. The company traded with the trust property. Within the six month period before a winding up order was made the company made a payment to a company of which the directors were the same as the directors of the trustee. The High Court considered whether the payment should be set aside as a preference pursuant to s.293 of the Companies Act (Qld). The High Court held that it should and proceeded on the basis that a trustee's right of indemnity out of the assets of the trust gave the trustee a proprietary interest in the assets of the trust. In their joint judgment Stephen, Mason, Aickin and Wilson JJ stated the relevant principles (at 367):

"It is common ground that a trustee who in discharge of his trust enters into business transactions is personally liable for any debts that are incurred in the course of those transactions: Vacuum Oil Co Pty Ltd v Wilstshire. However, he is entitled to be indemnified against those liabilities from the trust assets held by him and for the purpose of enforcing the indemnity the trustee possesses a charge or right of lien over those assets: Vacuum Oil Co Pty Ltd v Wiltshire. The charge is not capable of differential application to certain only of such assets. It applies to the whole range of trust assets in the trustee's possession except for those assets, if any, which under the terms of the trust deed the trustee is not authorized to use for the purposes of carrying on the business: Dowse v Gorton. In such a case there are then two classes of persons having a beneficial interest in the trust assets: first, the cestuis que trust, those for whose benefit the business was being carried on; and secondly, the trustee in respect of his right to be indemnified out of the trust assets against personal liabilities incurred in the performance of the trust. The latter interest will be preferred to the former, so that the cestuis que trust are not entitled to call for a distribution of trust assets which are subject to a charge in favour of the trustee until the charge has been satisfied: Vacuum Oil Co Pty Ltd v Wiltshire. The creditors of the trustee have limited rights with respect to the trust assets. The assets may not be taken in execution (Savage v Union Bank of Australia Ltd). In re Morgan; Pillgrem v Pillgrem but in the event of the trustee's bankruptcy the creditors will be subrogated to the beneficial interest enjoyed by the trustee: Vacuum Oil Co Pty Ltd v Wiltshire; Ex parte Garland. These principles lead naturally to the conclusion that the beneficial interests which, by subrogation, the creditors whose claims arise from the carrying on of the business have in the assets held by a bankrupt trustee form part of the property of the bankrupt divisible amongst his creditors: Savage v Union".

"Property which is an asset of a trading estate carried on by a trustee is properly described as trust property: Dowse v Gorton; Jennings v Mather. However, as we have already indicated, that does not mean that the cestuis que trust are necessarily entitled to call for the delivery of the property. If the trustee has incurred liabilities in the performance of the trust then he is entitled to be indemnified against those liabilities out of the trust property and for that purpose he is entitled to retain possession of the property as against the beneficiaries. The trustee's interest in the trust property amounts to a proprietary interest, and is sufficient to render the bald description of the property as 'trust property' inadequate. It is no longer property held solely in the interests of the beneficiaries of the trust and the trustee's interest in that property will pass to the trustee in bankruptcy for the benefit of the creditors of the trust trading operation should the trustee become bankrupt. The fact that the trust property itself cannot be taken in execution by the creditors of the trustee is not to the point. Those creditors are nevertheless subrogated to the rights of the trustee in relation to that property, and in the event of the trustee becoming bankrupt, it is those rights which are to be realized in their favour."

Finally, at 371 Stephen, Mason, Aickin and Wilson JJ stated the principle as follows:

"We take the view that the passing to the trustee in bankruptcy of the trustee's beneficial interest in the trust estate, even if that is all that passes, is sufficient to attract the operation of s.122 of the Bankruptcy Act. Once it is recognized that a trustee may enjoy a right of indemnity over the trust property in respect of liabilities incurred by him in the administration of the trust, it follows that the creditors of a trust business may have resort to the assets of the trust to the extent of the liabilities incurred by the trustee. Section 122 is apt in the case of an individual trading trustee to render void as against the trustee in bankruptcy a payment out of the trust property in circumstances which have the effect of giving the payee a preference, priority or advantage over other creditors. It is not necessary for us to decide in the present case whether money paid by way of preference would normally have to be repaid to the trustee in bankruptcy or to the bankrupt trustee. In the case of the winding up of a company the legal title to all company property including trust property, remains in the company. The liquidator of a company takes the position of the directors and, in the absence of a court order under s.233(2) of the Companies Act, acquires no title to company property."

In Re Byrne Australia Pty Ltd [1981] 1 NSWLR 394 it was held that the proceeds of a trustee's right of indemnity could be used in a winding up only for the payment of the creditors of the trust and that so far as the liquidator was concerned those costs and expenses could be paid out of the proceeds of the trustee's right of indemnity only if the liquidator had become a trust creditor in respect of such costs and expenses. In a second judgment, Re Byrne Australia Pty Ltd (No. 2) [1981] 2 NSWLR 364 Needham J held that the liquidator was not a trust creditor and, therefore, not entitled to recover costs and expenses out of the trust assets.

In the Byrne cases the company was trustee of a discretionary trust. The trustee company was wound up in a creditors' voluntary winding up. The trustee company had no business other than trade business authorised under the trust deed. Its debtors and creditors arose from the carrying on of the trust business. Accumulated creditors and contingent liabilities led to an estimated deficiency. The issue to be determined by the court was whether the liquidator of the trustee company was entitled to have the costs of the winding up paid before a distribution was made to trust creditors. Needham J (in Byrne (No. 2) at 398-399) accepted that the costs and expenses of the winding up could be met out of the trust assets only if the person who incurred such costs and expenses became a trust creditor. His Honour found that there was little evidence as to what the liquidator had done and, therefore, was of the view that the liquidator could not claim to be a trust creditor. Needham J held that the assets of the company should be distributed rateably among the trust creditors. In considering the right of indemnity, Needham J considered (at 397-398) the principles propounded by the High Court in Octavo and observed (at 398):

"There is no suggestion in the case that there were any creditors other than creditors of the trust business, and there was certainly no suggestion that the 'proprietary interest' which the trustee had in the trust fund was property divisible among the creditors other than those who were subrogated to the trustee's right of indemnity. In other words, the case is not authority for the proposition that, where a trustee company carries on business with a trust fund and incurs liabilities and then is wound up, the whole of the trust fund is property divisible amongst all the company's creditors, whether trust creditors or not. The right of indemnity arises only because the trustee is liable to creditors whose debts arose because of its activities as trustee of the fund. If there is no right of indemnity, there is no 'proprietary interest'. For example, if a company, having various powers including a power to act as trustee, carries on business on its own account as well as in its capacity as a trustee, it would have no right of indemnity out of the assets of the trust for liabilities it incurred in the business it carried on on its own account, and the creditors of that business would have no right to look tot he trust assets for payment of their debts by subrogation to the company's rights."

In Re Enhill Pty Ltd [1983] VicRp 52; [1983] 1 VR 561 the Full Court of this Court considered the right of indemnity or lien of a trading trustee company over the trust assets as property of the trustee available to its liquidator for division among the creditors of the trustee generally. The Full Court had before it an application for directions by the liquidator to permit the application of the proceeds of sale of assets held by a company as the trading trustee of a family trust in payment of the remuneration costs and expenses of the liquidator, the costs of a petitioning creditor and the liabilities that the company had incurred in the course of carrying on business. The company had never carried on any business on its own account but acted as trustee of a family trust with wide powers to employee the trust fund in the conduct of a trading business. The company was wound up by order of the court on the petition of the Deputy Commissioner of Taxation on the ground that it was unable to pay its debts. It was indebted to the Commissioner and, also, 23 unsecured creditors. The debt owed to the Commissioner took priority over other creditors who were to receive nothing. Furthermore, unless the liquidator's costs, expenses and remuneration could be met out of the proceeds of the realisation of trust assets, the liquidator would receive nothing also.

The relevant statutory provision at the time was s.292(1)(a) of the Companies Act 1961. It provided that, subject to the provisions of the Act, in a winding up the costs and expenses of the winding up and the remuneration of the liquidator took priority over all other unsecured debts.

The Full Court considered the judgment of the High Court in Octavo Investments and cited (at 563) the case as authority for the proposition " ... that the right of a trustee to be indemnified out of the assets of the trust, or the proceeds of the exercise of that right, are assets of the trustee in a winding up". Young CJ in Enhill (at 563) observed that where a trustee is a company that goes into liquidation there is generally no question concerning property passing to the liquidator as the legal title to all the company property including property held on trust remains in the company.

The learned Chief Justice (at 564) gave specific consideration to the paragraph just cited from the judgment in Byrne Australia and agreed that the question of the entitlement of a liquidator was not considered in Octavo. His Honour agreed, also, with the principle articulated by Needham J that where there is no right of indemnity there is no proprietary interest. However, Young CJ noted that the High Court in Octavo recognised:

" ... that the trustee's right to indemnity gave him a proprietary interest which on his bankruptcy passed to his trustee in bankruptcy or where the trustee was a company came under the control of the liquidator. No limitation was expressed upon the purposes for which the trustee in bankruptcy or the liquidator might apply the proceeds of the right."

"In a case like the present therefore the proceeds of the trustee's lien are available for division among the bankrupt's creditors generally, not only among creditors of the trust business, and in the case of a company in liquidation are subject to the control of the liquidator under s.292. Where, however, the trustee's indemnity derives from a party who is concerned with the application of the money which he pays, the situation may well be otherwise: see Liverpool Mortgage Insurance Company's Case, [1914] 2 Ch. 617, per Buckley, L.J., at p.633. Creditors of the trust business may be subrogated to the trustee's right of indemnity but they cannot, by subrogation, obtain any greater right than that possessed by the trustee, and when the trustee's estate is separated from the trust estate by bankruptcy they rank with the general creditors of the bankrupt. They can have no better right than the bankrupt trustee: cf. Re Johnson; Shearman v. Johnson (1880), 15 Ch. D. 548, at pp.552 and 555."

Young CJ, with whom Gray J agreed as did Lush J but in a separate judgment, held that the liquidator in Enhill was entitled to be paid his costs out of trust assets. The foundation for the reasoning appears to have been that the right of indemnity or lien of a trading trustee company over the trust assets is property of the trustee available to its liquidator for division among the trustee's creditors generally. Hence, the Full Court did not follow Needham J in Byrne Australia.

The judgment in Enhill provoked debate and even strong criticism: Jacobs' Law of Trusts in Australia (5th ed.), Meagher, R and Gummow, W, p.594.

The Full Court of the Supreme Court of South Australia considered a similar issue in Re Suco Gold Pty Ltd (in liquidation) (1983) 7 ACLR 873. King CJ, with whom Matheson J agreed together with Jacobs J for additional reasons, did not follow Enhill. King CJ (at 882-883) held that a liquidator's costs may be paid out of the trust property on the basis that such costs constitute an obligation of the trustee company "arising out of the carrying on of the business authorised by the trusts". The learned Chief Justice took the approach that it is part of the duties of a trustee company to incur debts as part and parcel of the achieving of the purposes of the business of the trust. Flowing from the statutory provisions concerned with winding up, King CJ observed that the liquidator's costs are debts of the company. His Honour proceeded then to conclude (at 883):

"As the company's obligation as trustee to pay the debts incurred in carrying out the trust cannot be performed unless the liquidation proceeds, it seems to me to be reasonable to regard the expenses mentioned above as debts of the company incurred in discharging the duties imposed by the trust and as covered by the trustee's right of indemnity."

In Ramsay v National Australia Bank Limited [1989] VicRp 7; [1989] VR 59 the Full Court of this Court, differently constituted (by Murphy, Southwell and J.H. Phillips JJ) considered the debate surrounding Enhill. In the joint judgment, after considering Suco Gold and Octavo, the Full Court stated (at 68):

"In any event, the decision in Re Enhill Pty Ltd appears to us to be discretely founded on the principle that a trustee's right of indemnity is itself based on the right that a trustee has to 'exonerate his personal estate' (at p.564) out of the trust assets. We do not find it necessary to comment further upon the reasons in Re Enhill, which have been said to 'look distinctly fragile': Finn, Essays in Equity, (1977), p.250. Moreover, we are not here concerned with a trustee's right of indemnity against trust assets but rather the relevant right of indemnity, being simply a contractual right. In our opinion it constitutes property of the company in the hands of and under the control of the liquidator. It would be 'property' of the company of which it could dispose, within the meaning of the section. That is not the same thing as to say that the company does dispose of it, if after the contract giving rise to the indemnity, the debt to which the right of indemnity relates is satisfied by the indemnifier."

In Young and Ors v Murphy and Anor [1996] 1 VR 279 the Appeal Division of this Court considered the entitlement of a new or substituted trustee to bring proceedings for breach of trust against a former trustee which was then in liquidation. J.D. Phillips J, with whom Batt J agreed, referred (at 303) to the debate surrounding Enhill:

"That BPTC's right over against its own directors is property available or creditors generally in the winding up of BPTC is, I think, consistent with the decision of this court in Re Enhill Pty Ltd [1983] VicRp 52; [1983] 1 VR 561, where the trustee's right of indemnity out of the assets of the trust was considered in the winding up of the trustee. It had been held in Re Byrne Australia Pty Ltd [1981] 1 NSWLR 394 that the proceeds of a trustee's right of indemnity out of the assets could be used in the winding up only for the payment of the creditors of the trust: see also Re Byrne Australia Pty Ltd (No. 2) [1981] 2 NSWLR 364. This court declined to follow those two decisions of Needham J., holding instead that the trustee's right of indemnity out of the trust assets was property available to the liquidator for division among the trustee's creditors generally in the winding up of the trustee. In substance, this court was of the view that the special considerations affecting a trustee's right of indemnity out of the assets were not such as to confine the availability of that right, considered as an item of property in the winding up, to creditors of the trust. Of course, in the present case there are no such special considerations, where BPTC, if it is to be considered as having some right of 'indemnity' from its directors, is relying upon duties which those directors owed generally to their company; nor is that 'indemnity' to come out of the assets of the trust. In those circumstances, the difference of opinion between the Supreme Court of New South Wales and this court on the question of the trustee's right of indemnity out of trust assets when the trustee is being wound up (as to which see also Re Suco Gold Pty Ltd (In liq) (1983) 33 SASR 99; Kemtron Industries Pty Ltd v Commissioner of Stamp Duties (Qld) [1984] 1 Qd R 576 and Ramsay v national Australia Bank Ltd [1989] VicRp 7; [1989] VR 59) is not a difference of opinion which is at all relevant."

Notwithstanding the criticism levied elsewhere against Enhill, it is authority that binds me. Furthermore, on two subsequent occasions the Appellate Court of this Court has not criticised the principle for which Enhill stands, namely, that the right of indemnity is available to the liquidator to be divided among the trustee's creditors generally.

However, for present purposes, in Enhill, the Full Court did not deviate from the principle expressed earlier in Johnson and the other authorities in relation to the right of a creditor of a trustee to look to the trust assets by way of subrogation to the creditor of the trustee's right of indemnity. Of course, the distinguishing feature of Enhill was that the court was concerned with the entitlement of the liquidator and the costs of the winding up. No such fact arises in the present case. Mr Nolan relied upon Enhill to support the proposition that all creditors must be treated equally and none ought be put at an advantage by way of subrogation of the trustee's right of indemnity. The costs and expenses of liquidation are separate from the costs of administering a trust. As a general proposition trust assets are only applied to trust liabilities. The present case is not one where a liquidator seeks costs as was the case in Enhill. Rather, here Mr Collie is a creditor whose circumstances fall squarely within the parameters of the principle applied in Johnson and cited with unanimous approval in Enhill. Hence, in my view, Mr Collie is entitled to enjoy the indemnity of the trustee of the Prudent Trust from the trust assets by way of subrogation.

On the basis of the authorities I am satisfied that Mr Collie, in his capacity as trustee of the Terranol trust is a creditor of the trustee, Merlaw and as a consequence Mr Collie is entitled to be subrogated to the right of indemnity of Merlaw out of the trust assets of the Prudent Trust. Mr Nolan is trustee of the Prudent Trust subject that indemnity.

It follows that the plaintiff succeeds and I will require the parties to prepare minutes of orders reflecting these reasons.

Before finally disposing of the matter there were additional preliminary applications made by Mr Nolan at the commencement of the trial. It is convenient and appropriate to set out below my reasons for disposition of those applications.

There were three preliminary applications made by Mr Nolan concerned with adjournment, amendment and standing. There was a fourth matter that arose after the completion of the trial arising from the submission of further written argument by Mr Noland. I consider each of these matters separately.

At the commencement of the trial of the present proceeding Mr Nolan sought an adjournment on the basis that terms of settlement had been effected between he and the liquidator of Merlaw and that, as a consequence, nothing was left in the proceeding brought by the plaintiff once the terms were approved by a master under the Corporations Law.

The relevant terms of settlement were entered into between Mr Nolan and the liquidator of Merlaw on 10 August 2000, that is, some two months after the commencement of the present proceeding. In summary, the terms provided as follows:

(1) Mr Nolan as trustee agreed to pay the sum of $150,000 in instalments to the liquidator to satisfy the claim of the liquidator for indemnity against the trustee as trustee of the Prudent Trust. (clause 3.1)

(2) A recital of the fact of the present proceeding (clause 17).

(3) A requirement of the appointment of an independent accountant to prepare a report for the liquidator for the purpose of seeking court approval of the settlement.

(4) An acknowledgment by the liquidator and Mr Nolan that settlement did not in any way seek to detract or alter the rights, if any, that Mr Collie as plaintiff asserts in the present proceeding (clause 21).

It was submitted on behalf of Mr Nolan that the proceeding should be adjourned to await determination of the application to the Master for approval of the settlement. As matters stood the report of the accountant was received some four days before the commencement of the trial. I was informed by Mr R. Randall who appeared for Merlaw that there were "some difficulties" with the report and it could not be expected that the matter would be resolved in the immediate future. I was informed that the liquidator could not say when the application would be made to a master, if at all, for approval of the settlement. It was submitted on behalf of Mr Nolan that the proceeding should be adjourned because no purpose was served in the present proceeding being heard. In support of this contention it was argued that this court is functus officio because of the terms of settlement on the premise that the plaintiff's rights are no more than those of the liquidator. I did not accept that submission on a number of grounds.

First, the present proceeding is the last step by the plaintiff, Mr Collie, to achieve the benefits of the judgment ordered on 24 November 1999. An application was foreshadowed on behalf of Mr Nolan to plead an amended defence as to the matters of subrogation and the effect of the terms of settlement. I indicated that leave would be granted for such amendments and I observed that nothing was said to the contrary by the plaintiff, Mr Collie. Ultimately, I was satisfied that there was no prejudice to the second defendant, Mr Nolan, if the adjournment was refused because those issues could be ventilated in an amended defence.

The second submission made on behalf of Mr Nolan was that the potential judgment in the present proceeding may be inconsistent with the terms themselves. I do not accept these submissions. Those matters could readily be the subject of evidence. Furthermore, the terms were not final or, for that matter, approved by the Court.

The third submission made on behalf of Mr Nolan was that the claim of the plaintiff, Mr Collie, must result in a determination that Merlaw acted unlawfully. Hence, it was said, the issue was raised of whether there was in fact a right of indemnity. Again, I considered these matters could be the subject of evidence.

In any event, ultimately, in the exercise of the discretion I considered that the application for the adjournment constituted an attempt to frustrate the efforts of the plaintiff, Mr Collie, to achieve the fruits of the judgment ordered by Byrne J. In this respect, I observed that the terms of settlement were entered into on 10 August 2000, some two months before the trial. Indeed, a consideration of the history of the proceeding and its interlocutory stages revealed a history of stalling. I observed that a similar application for an adjournment was made to the Listing Master shortly before the commencement of the trial of the present proceeding and refused. There was no appeal against that refusal. Finally, the liquidator said nothing against the present proceeding continuing. If any party ought have concerns with the trial proceeding it ought have been the liquidator. He did not seek an adjournment. In my view Mr Nolan had no standing to make the submission that he did.

As a result of these views I refused the application to adjourn the proceeding.

Having failed on the adjournment application Mr Nolan proceeded with an application to amend his defence. The application was made at first instance on the first day of trial, on 27 September 2000 by Mr M. Corrigan, who appeared as counsel for Mr Nolan. The proceeding was adjourned to give Mr Corrigan the opportunity to consider the proposed amended pleading overnight.

The next day of the trial, on 28 September 2000, I was informed by Mr Nolan that Mr Corrigan was no longer retained in the matter on his behalf. Thereafter, Mr Nolan appeared in person for the balance of the trial. At no stage was I informed of the professional background or qualifications of Mr Nolan. However, I observe that he conducted his case throughout with skill and competence bearing the hallmarks of at least some legal and adversarial knowledge.

The proposed amended pleading urged by Mr Nolan contained a number of changes. The plaintiff did not oppose the amendments save for one, that contained in paragraph 6(d) of the proposed amended defence.

It is appropriate to set out the whole of paragraph 6 of the amended statement of claim. I observe that paragraph 6 remained unaltered from the date of the filing of the writ. Other amendments were made to the pleading that did not affect paragraph 6. The amended statement of claim dated 25 July 2000 provided:

"6. Merlaw Nominees - (a) Has not paid or satisfied the Judgment, in part or at all. (b) Is and remains entitled to indemnity out of and to exoneration from the trust estate of the Prudent Trust ('the trust estate') in respect of that liability and the Judgment. (c) Has to that extent an equitable charge or interest in the trust estate. (d) Has been unable or unwilling, by reason of its own impecuniosity or otherwise, to take such proceedings for indemnity and exoneration. (e) After the institution of the Proceeding, and upon ceasing to be trustee, transferred or purported to transfer the trust estate to Nolan."

In his original defence filed Mr Nolan expressly admitted the allegation contained in paragraph 6(d) of the defence. In the proposed amended defence Mr Nolan effectively sought to amend paragraph 6(d) by withdrawing the admission.

Despite a specific enquiry from the court and notwithstanding the overnight adjournment Mr Nolan did not file any affidavit to support the withdrawal of the admissions. At the time of the application the pleadings were closed and the admission had stood unaltered for a period of some months. The plaintiff came to trial prepared to conduct its case on the basis of the admission contained in paragraph 6(d) of the defence. It was pivotal to the plaintiff's case. I note, further, that the matter was first fixed for trial in August 2000 and not reached. No application was made to the Listing Master at that time for leave to withdraw the admission. More recently, on 21 September 2000 an application was made to the Listing Master for leave to amend the defence by way of withdrawing the admission. The application was refused. There was no appeal.

It is instructive to consider the authorities with respect to the withdrawal of an admission in the pleadings. In Divcon v Devine Shipping [1996] VicRp 58; [1996] 2 VR 79, Beach J observed (at 80) that:

"An admission in a pleading is a serious step for a party to take. It means that proof is no longer required or permitted of the fact admitted as the fact is no longer in controversy between the parties: see Pioneer Plastic Containers Ltd v Commissioners of Customs and Excise [1967] Ch. 597. Further, admissions by pleading entitle the court to make orders in favour of a party to which that party is entitled on those admissions. See r.35.04. As a matter of principle a party who has made an admission in a pleading should not be entitled to withdraw that admission without good cause, for example, that the admission was made in error by the party who prepared or gave the instructions for the preparation of the pleading, or as the consequence of a misapprehension by counsel or solicitor concerning the client's instructions."

In Pioneer Plastic Containers Ltd v Commissioners of Customs and Excise [1967] Ch. 597 Buckley J (at 601) held that:

" ... it is for the plaintiffs to plead the facts in their statement of claim and if, having pleaded them in the statement of claim, the defendants admit all those facts, then there is no issue between the parties on that part of the case which is concerned with matters of fact. Where there is no issue to be decided there is no proper purpose to be served by admitting any evidence ... ".

"But that evidence is accepted by the court in a case where there are issues of fact between the parties is no reason for holding that evidence should be admitted where all the facts alleged by the plaintiff are admitted by the defendant".

It has been recognised that at an interlocutory stage of a proceeding, unless some substantial prejudice can be demonstrated, a proper amendment to the pleading will ordinarily be allowed: see Commonwealth v Condor Engineering Pty Ltd, unreported judgment of Hedigan J dated 21 September 1994. Of course, the application here was made at trial not the interlocutory phase despite the second defendant, Mr Nolan, having been to court a number of times and not taking the opportunity to raise the matter. However, withdrawal of an admission is not permitted easily: see Cooper's Brewery Limited v Panfida Foods Limited (1992) 26 NSWLR 738. Here Mr Nolan has not placed any or any adequate evidence before the court to support the application for amendment. This is a necessary prerequisite: see Langdale v Danby [1982] 3 All ER 129, 138-9. Rather, Mr Nolan relies essentially on the fact that he appears in person. However, I note that the original defence was drawn by counsel and signed by the then solicitors on the record. Furthermore, leave will not ordinarily be granted if the admission has stood on the record for a long time or if withdrawal would cause prejudice to the other side: see Tony Sadler Pty Ltd v Anro McLeod Nominees Pty Ltd (1994) 13 WAR 323, 331. Here the defence was filed, some weeks before the trial. The second defendant waited until the day fixed for trial to raise the matter before the Listing Master.

Further, there was no evidence before me of mistake or inadvertence on the part of Mr Nolan or his former legal representatives: see Hollis v Burton (1892) 3 Ch. 226; also, BP Australia Limited v Carige (No. 2) [1992] NTSC 97; (1992) 112 FLR 119.

Hence, it followed that Mr Nolan did not satisfy the usual requirements for leave to withdraw an admission. In terms of the prejudice to be suffered I observe that the admission was critical to the plaintiff's case. The prejudice to the plaintiff would have been substantial if leave to withdraw was granted. The plaintiff would have needed to depart and re-prepare its case. Against that prejudice, it remained open to the second defendant, Mr Nolan, to make submissions tantamount to the effect he wished to achieve with the withdrawal of the admission, that is, as I perceived it, the second defendant wanted to say that he could not speak for the mind of the liquidator. I concluded that such submission would be allowed in the course of argument and I received argument to that effect. Furthermore, it was apparent at the time of determining the application that the liquidator himself was to give evidence and questions would be allowed as to his intentions, belief and state of mind at relevant times. Indeed that proved to be the case. Ultimately I concluded that no prejudice would be suffered by the second defendant in refusing to allow the withdrawal of the admission. Accordingly and for these reasons the application was refused.

3. The challenge to the standing of the plaintiff to bring the present proceeding

Mr Nolan complained that Mr Collie had no standing to bring the present proceeding.

On 31 May 2000 Beach J on an application by Mr Collie granted leave pursuant to s.471B of the Corporations Law to institute the present proceedings. Mr Nolan complained that the orders were made by Beach J without proper consideration of all the issues including the nature of the plaintiff's claim. He relied upon the approaches taken in Oceanic Life Limited v Insurance and Retirement Services Pty Ltd (in liq) (1993) 11 ACSR 516 and Re Addstone Pty Ltd (in liq); ex parte Macks (1998-1999) 30 ACSR 162. In those authorities the approach taken by the court on a discrete application was to consider the nature and strength of the claim proposed to be brought against the company in liquidation and, further, expressed the view that leave should not be granted to enable one party to obtain an advantage over other creditors.

Mr Nolan complained that the orders were made by Beach J on 31 May 2000 without proper consideration of all the issues including the nature and strength of the plaintiff's claim in the present proceeding. A number of observations may be made. First, there was no subsequent application to Beach J to vacate the order made on 31 May 2000 and, further, there was no appeal against that order. The order must, therefore, stand and I will not interfere with it. Second, for the reasons stated in this judgment it is apparent that it was appropriate for the learned judge to make the orders that he did on 31 May 2000. Thirdly, insofar as the authorities relied on by Mr Nolan indicate a view that a creditor should not be placed in an advantageous position in relation to other creditors by way of leave being obtained under s.471B of the Corporations Law, for the reasons stated in my judgment the circumstances and the relevant legal principles in the present proceeding place it in a different if not special category.

For these reasons I rejected Mr Nolan's challenge to the standing of the first plaintiff.

Some time after the completion of the trial Mr Nolan forwarded further written submissions to the court. The plaintiff was provided with a copy and informed the court, in writing, of his objection to receipt of the further submissions by Mr Nolan.

The Court of Appeal has declared in strong terms that parties should not make further written submissions after a hearing is completed. On that basis, therefore, I have not considered the further submissions in my reasons. Nevertheless, I observe that the submissions did not appear to raise any new matter or cause me to revise the reasons I have set out already.

At a glance

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Judgment (123 paragraphs)

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Cases Cited (8)